Launching a tech startup is like building a Boeing 747. Both require developing and executing on a series of processes to achieve lift-off.
Drilling those processes into the heads of wannabe entrepreneurs has been Merrick Furst’s focus for the past five years.
Furst leads Flashpoint, a Atlanta technology accelerator program that has graduated more than 60 companies that have collectively raised $273 million. The vast majority of the program’s success can be traced to two companies —Pindrop Security and Ionic Security — which together have raised nearly $240 million.
Flashpoint — which began five years ago as an experiment by Georgia Tech — is similar to Silicon Valley’s Y Combinator, Boston’s TechStars or Austin’s Capital Factory, but with a key difference. Flashpoint uses behavioral economics and other academic disciplines to help startups discover “authentic demand,” which Furst believes is central to company success.
The four- to six-month “accelerator” program, held two to three times a year, helps entrepreneurs develop scalable businesses. Accepted startups are offered work spaces and go through a “startup course.”
The Flashpoint program takes people who have some technical expertise and knowledge of a market and helps them form a sustainable business. “We have a set of things that we can teach people that can make them better founders,” said Furst, a distinguished fellow at Georgia Tech’s Center for Startup Engineering. “Our focus is on helping people to notice what they aren’t noticing.”
For Furst, Flashpoint’s success is defined by: “Are we helping people create wealth and are we making it possible for people to know how to build value-adding companies at scale?”
Flashpoint uses a process called “startup engineering” developed by Furst. Startup engineering is analogous to building an airplane. It’s about developing the processes and tools to reduce the risk or increase the likelihood of success for a startup. “We’ve identified the factors that cause startups to fail,” Furst said. “Startup engineering is about finding ways to manage around it.”
The fundamental problem for entrepreneurs is getting over the fact that “what they know, ain’t so,” Furst said, quoting Mark Twain.
Flashpoint questions entrepreneurs’ assumptions about their business idea or model. “We help them see that there is something much more important about their business that they don’t see, and that gives them a much bigger market,” Furst said. “It’s hard for it not to be somewhat painful to discover that something you were certain was true, is not necessarily so.”
Pain is a common theme among several entrepreneurs who have been through Flashpoint. In a city of cheerleaders, Furst’s unsweetened opinions can come across as a wince-inducing jab of the elbow. That style of coaching draws praise and derision from several Atlanta entrepreneurs who have cycled through Flashpoint.
“Merrick is just brutally honest and he does not have any problem being extraordinarily clear about what his opinion is,” said Adam Ghetti, CEO of cybersecurity firm Ionic Security. “Some people don’t handle that well.”
Mario Montag, bitten by the entrepreneurial bug, had a full-time job when he joined Flashpoint. “When I walked in there with an idea and a couple of guys, they beat the [stuffing] out of me and that was what I needed,” Montag said. “Merrick pushed you, and challenged you, and helped you think differently about the psychological triggers that get people to pay for a product or service.”
The Flashpoint weekly standups, where teams provide updates on weekly goals, was described by Montag and others as brutal, high-stress and one in which punches were rarely pulled.
Montag worked on two startups during his six-month stint at Flashpoint, neither of which panned out. But the skills he learned along the way made his current startup Predikto possible. The sensor-based analytics software company, which Montag started six months after his Flashpoint program, has raised nearly $4 million and is preparing for a Series B investment round.
“Flashpoint was a total failure from a startup standpoint, but personally it was huge for me,” Montag said. “The speed at which Predikto moved at and how I executed would not have happened without Flashpoint.”
Montag says he personally doesn’t like Furst, admitting the two don’t get along as well as other graduates of Flashpoint do with Furst. “He’s like the teacher who beat the crap out of you, and you cried and you hated it, but in the end you are a better person because of them,” Montag said.
Flashpoint is hard and the feedback candid in an effort to provide clarity, Furst argues. “We have high expectations,” he said. “We ask people to examine their thought process. We ask them to learn a method.”
As harsh as the process can be, “Merrick really wants you to win,” said Rob Kischuk, CEO of marketing analytics startup Converge. Furst was instrumental in helping Kischuk negotiate an investment from billionaire Mark Cuban.
There was a point during negotiations where Cuban quit answering Kischuk’s email. Furst reviewed the email thread with Cuban and suggested a different approach to reengage the investor.
“Mark Cuban is writing one sentence to you and you’re writing a paragraph back,” Furst pointed out to Kischuk. “You need to mirror his writing style if you want to get what you want. Talk to him the way he wants to talk to you, and it’ll be a more effective session.”
Flashpoint’s success thus far hinges on two home runs — Pindrop and Ionic — in the first batch, which Kischuk contends was a result of “cherry-picking.”
“It was pretty clear on Day One that Ionic … and Pindrop were ringers, and Furst specifically recruited them,” Kischuk said. “They were the horses the accelerator bet on.”
Furst disagrees with the “cherry-picking” characterization.
“Neither (Pindrop nor Ionic) looked like they were sure things to be successful when they came to Flashpoint,” Furst said. “I give (the founders) full credit for their successes.”
Authentic demand
The Flashpoint model emphasizes the customer discovery process — identifying “authentic demand” before building a product. Authentic demand is when a customer “can’t not buy” a company’s product or service.
“It’s when customers hear what you’re doing and they follow you home until they get it,” Furst said. “It represents a legitimate concern of theirs that they can’t not do something about.”
Figuring out what the authentic demand is early on can save a startup an entire round of funding.
“If you can start with that and then figure out how to make something that meets the authentic demand, it seems a lot more effective than to make something and try to figure out how to get authentic demand for it,” Furst said.
Knowing when to admit an idea is not working — and moving on — is another critical lesson for entrepreneurs.
“Entrepreneurs in Atlanta don’t embrace failure mode as well as in they do in Silicon Valley,” Furst said. “People don’t stop, they just keep pouring money and effort into broken technologies and business models.”
Flashpoint is a quick way for entrepreneurs to get to a valid idea, Kischuk said. “The program forces [entrepreneurs] to get out of the building and talk to customers, being careful not to ask the questions that just reinforce your own beliefs,” he said.
Flashpoint’s nearly singular focus on customer discovery was instrumental in helping e-commerce startup Springbot refine the value proposition and prioritize what to build first.
“Having access to a behavioral scientist really helped shape our product,” CEO Brooks Robinson said. “We uncovered another piece of our product because of that discussion.”
Springbot’s eventual investors — TTV and TechOperators — had a front-row seat in watching the startup evolve though the three-month program.
“It’s not an easy program,” Robinson said. “It’s intense, it’s full-time and requires a commitment.”
At Flashpoint, Ghetti pivoted Ionic (then called Social Fortress) to focus on enterprise customers. Ionic Security has since raised $117 million.
“It helped us really get focused on turning technology into product,” Ghetti said. “It helped us have a lot of conversations we probably wouldn’t have forced ourselves to have as fast as we had them and as frequently as we had them. There was a lot of social pressure from (peers in the program) to meet with more customers next week than you met with the previous week.”
Flashpoint’s mentor network helped Ionic get in front of the “right people” — investors, customers and key employees — sooner than the startup might have on its own. Ionic recruited its founding VP of engineering while at Flashpoint. “Being able to come and see us progress on a weekly basis as an outside observer went a long way to get Jim (Jordan) on board, who was our first outside full-time hire,” Ghetti.
Flashpoint can be a bit “academic” and the customer discovery focus comes at the expense of product development and selling, according to some entrepreneurs.
“You spend all your time aiming, rather than firing,” Kischuk said. “I would like the pace of the program to be a little more urgent in building the business.”
Springbot’s Robinson agreed, noting his startup wasn’t quite ready to attract VC funding when Demo Day rolled around. Three months of doing customer discovery doesn’t seem too long, Robinson said. “But it’s very difficult to go raise a round on customer discovery alone,” he said. “We needed to also build something to get customer traction before VCs would invest.”
Looking Ahead
Flashpoint has been a learning experience for Furst, as much as it has for the entrepreneurs who have cycled through the program.
In 2013, Furst partnered with San Francisco investor Matt Chanoff to spin Flashpoint out of Georgia Tech as an independent company. The program was broadened to include corporations who send employee teams, hoping to retain talent and foster innovation. About a third of the last Flashpoint class was made up of corporate teams.
Flashpoint has diversified to include entrepreneurs from outside metro Atlanta. Minority and women entrepreneurs accounted for about 60 percent of the last class. Flashpoint accepts 6 percent of applicants and uses a merit-based process that eliminates bias.
“We take applications and remove all information about age, sex and race, and then we score them on factors like ‘Do they know their market? Do they have entrepreneurial experience?’” Furst said.
Flashpoint wants to move beyond first-time entrepreneurs. “We like the idea of a more mature entrepreneur with an immature business,” Furst said. “Trying to solve both the problem of maturing the entrepreneur and the business is more difficult.”
Furst wants to attract companies with $25 million to $30 million in revenues that find themselves hitting the growth plateau.
“We are able to help people figure out authentic demand that they might not be aware of that they can then build on and grow toward,” Furst said. “We’ll do projects that are designed to create growth for them.”
Flashpoint, which has attracted hardware and software, enterprise and consumer-facing companies, has shied away from focusing on industry verticals.
“If you make yourself niche you reduce the applicant pool,” Furst said. “On the flip side, having a niche makes it easier to explain what the accelerator does and raise capital.”
Flashpoint’s core curriculum — market discovery — applies across industries, creating new markets for the programs.
“At some point, we’ll end up helping niche accelerators by offering them to our startup engineering methods,” Furst said. “We think we can help anybody who is doing entrepreneurship.”
Highlights
63 – Startup teams graduated
60 percent – Companies still in business
$273 million – Collectively raised from investors, including Andreessen Horowitz, Kleiner Perkins Caufield & Byers, Google Ventures, IVP, Meritech, Sigma Partners and ffVentures
$1.2 billion – Collective valuation